IRS crackdown on foreign assets leading many to renounce U.S. citizenship

A growing number of U.S. citizens who live abroad and have bank accounts there are making a radical decision to avoid paying taxes: They’re giving up their U.S. citizenship.

Last year, 1,780 Americans relinquished their citizenship to avoid disclosing foreign account information to the Internal Revenue Service. This is a sharp increase over 2010, when 1,485 renounced citizenship. In 2009, the number was 731 and in 2008 226.

The increasing numbers of Americans renouncing citizenship is the result of an IRS crackdown: Within the past three years, the agency has stepped up efforts to track down and prosecute U.S. citizens who evade taxes by hiding money and other financial assets in foreign bank accounts.

Alan Weisberg, a prominent tax attorney with the Miami firm of Weisberg and Kainen, said he has noticed an increase in interest by some clients in exploring the possibility of renouncing citizenship.

The number of citizenship renunciations began rising in 2009, when one of the world’s biggest banks, UBS AG of Switzerland, agreed to give the United States the names of thousands of American clients with secret bank accounts.

The landmark agreement came in the wake of charges in Fort Lauderdale federal court against Bradley Birkenfeld, a former UBS AG employee who later assisted the IRS in identifying thousands of tax evaders.

Before the IRS intensified its pressure, 200 to 400 Americans relinquished citizenship annually.

The number is expected to increase even more next year when foreign banks will be required to supply information about U.S. clients’ bank accounts. Some banks abroad are already prohibiting Americans from opening accounts.

Edward Robbins, a tax attorney in Beverly Hills, Calif., said that the IRS crackdown “is obviously linked” to the wave of citizenship renunciations.

“There is a general government push for more disclosure,” he said.

One of Robbins’ clients was Igor Olenicoff, a chief defendant in the IRS investigation of UBS AG. Birkenfeld helped Olenicoff and other millionaires hide fortunes in secret accounts, according to court documents.

The most recent case involves a Miami Lakes businessman, Humberto Gómez, who on May 3 pleaded guilty in federal court to filing a false income tax return.

Gómez operated businesses in Venezuela and the British Virgin Islands that sold stamped metals and auto parts, according to a statement from the U.S. Attorney’s Office in Miami. In 2004, he opened a bank account at UBS AG in the British Virgin Islands under the name of Bullrush Overseas Ltd.

According to the statement between August 2006 and December 2007, Gómez deposited in the account about $1.8 million, but his tax return did not reveal the account as required by law. He is expected to be sentenced in July.

To renounce citizenship, one must appear before a U.S. diplomatic representative abroad and sign an oath. The procedure is undertaken by Americans who are already citizens of another country.

That was the case on April 7, 2011, when Peter Dunn appeared before a U.S. consulate official in Toronto and signed an oath relinquishing his U.S. citizenship, according to a report by Reuters.

Dunn said his Canadian wife was upset by the IRS demand to disclose joint bank accounts.